Capital gains are the profit from selling an asset or investment for more than its purchase price. Capital gains can apply to any type of asset, including investments, real estate, personal property, and collectibles.

Capital gains must be claimed on income tax returns and are taxed differently depending on their classification. U.S Internal Revenue Code allows a tax exemption on capital gains from the sale of your principal residence. For married couples filing jointly, the tax exemption may be up to $500,000, but for a single person, the exemption is only up to $250,000. To claim the exemption, you must have lived in the property as your personal residence for at least two years. You could not have excluded the gain from the sale of another home during the two-year period ending on the date of the sale. 

How to Calculate Capital Gains on Real Estate

Take the purchase price of the property. Subtract the cost of purchase, inspections, transfer fees, and pre-paid interest. Subtract the cost of selling. Inspection fees, real estate commission, and money spent to prepare the house for sale. Subtract any capital improvements during ownership, room additions, deck, central air, or heat. Improvements do not include repairing or replacing something already existing, such as a roof or new windows. But these repairs are deductible if this is done on a rental property. The total is the adjusted cost basis. Subtract this adjusted cost basis from the amount the home sold for. This is your capital gain. If you are thinking of selling your personal residence or a rental property, please call me. 

Mary Ann Edwards – Re Max College Park – RE Lic # 00103542 

562-544-0449